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How CEOs can balance tradition and innovation

Striking a balance

Balancing tradition and innovation in the financial services industry

How financial services CEOs can best leverage the intersection of tradition and innovation

According to our 2018 Global CEO Outlook, CEOs around the world are feeling bullish about the economy and future prospects. At the same time, many CEOs show a strong sense of realism — from the 49 percent who expect being hit by a cyber attack is a question of 'when' not 'if', to the 65 percent who feel overwhelmed by lead times required to achieve significant progress on transformation.

While most CEOs recognize the importance of innovation, they also know they face big challenges. With long-entrenched cultures, legacy technology architectures, and missing skill sets, CEOs of traditional companies can find it difficult to break outside their established mold enough to embrace innovation.

Innovation and the financial services industry

CEO concerns related to transformation are certainly present in the financial services industry. Financial institutions are under pressure from fintechs — innovative companies able to leverage technology to deliver more effective and efficient services to customers.

Yet, financial institutions have strengths that shouldn't be discounted: a large customer base, stakeholder trust and deep personal relationships. These strengths will likely make it difficult for the industry to be completely disintermediated in the near-term. Over the coming decades, however — as millennials take over from the baby boomers and Gen X — the speed of disintermediation could grow. In the meantime, traditional organizations have an unparalleled opportunity to link their strengths with innovation to become more competitive.

But how can business leaders merge the old and the new effectively? They can start by focusing on three critical activities:

Create a future-focused strategy

Traditional financial institutions today are faced with the need to evolve into organizations able to respond to future needs, even while managing their traditional customers and day-to-day challenges. These challenges are echoed among CEOs globally, with 38 percent saying they need to reposition their brand to meet the needs of millennials and only a quarter saying they are currently exceeding their customers' expectations for a personalized experience.

Developing a future-focused strategy that identifies what they want their organization to be can help leaders proactively guide the transformation. By creating a future-focused strategy, leaders can ensure that responses to shorter-term challenges can be used as building blocks toward the desired future state - a state that will, in and of itself, keep evolving.

Shift to a more agile culture

Globally, almost 60 percent of CEOs believe agility is the new currency of business. Many companies believe that to be able to compete for talent and customers, they need to change their culture to one that is more agile and responsive rather than bound by risk aversion and tradition.

To shift the culture of a more traditional institution, business leaders need to champion change from the top. On the positive side, CEOs recognize their critical role in the success of transformation efforts. Seventy-one percent of participants in our CEO Outlook say they are personally ready to lead a radical organization transformation.

Getting it right will take effort. Business leaders need to understand the dynamics of the innovation culture they want to build and then actively communicate why the change is important to both the organization and individual employees.

Find the talent balance

Globally, 37 percent of CEOs are planning to increase their headcount by more than 6 percent over the next three years. That's not to say companies will be going to the same well for talent. In fact, many organizations recognize that the skills needed in the future will be different than they are today. Already, some financial institutions have focused their recruitment on in-demand specialized skills - such as data scientists, engineers and technical experts.

At the same time, financial institutions shouldn't forget what makes them unique: their existing workforce of people who understand the business and industry. As they continue to identify ways to compete in the tech talent war with companies like Google and Amazon, they should also look at ways to leverage their existing people.

Bringing the best of the old, while evolving into something new

While some fintech companies have seen dramatic success, there are no signs that these types of companies will completely disintermediate the financial services industry in the future. Many fintechs are actually partnering with financial institutions to leverage their strengths while providing an innovative tool or service.

The reality for CEOs and other traditional business leaders is that success in the future will likely be dependent on leveraging the best of the old while evolving into new organizations better able to meet the needs of tomorrow's customers.